The growing cost of health care benefits has concerned employers for decades, leading them to implement strategies such as cost-sharing with employees, consumer-driven health plans (CDHPs) and wellness programs to encourage healthy habits.
With passage of the Patient Protection and Affordable Care Act (ACA) in 2010, these concerns grew: Health plan coverage was now being mandated for many more employers and employees, and a “Cadillac tax” would be imposed on high-cost plans.
Although the deadline for implementing the Cadillac tax has been delayed, employer interest in cost-saving strategies remains strong.
Nearly half (49%) of employers taking part in a survey by the Healthcare Trends Institute said they have increased employee cost-sharing, and 40% have raised premium contributions. In addition, adoption of CDHPs and wellness programs is on the rise.
“We continue to see cost-sharing, and we don’t think that will change,” agrees Kim Buckey, vice president of client services at DirectPath in Detroit.
Strategies for reducing the cost of providing health care benefits keep evolving, and new ones emerge. For example, both the share of private-sector self-insured health plans and number of covered workers in such plans have increased among small and midsized firms since the ACA, says research from the Employee Benefit Research Institute (EBRI).
Accountable Care Organization
One especially promising self-insured health plan model may be the accountable care organization (ACO), in which employers directly contract with medical providers, explains Xavier Serrano, vice president of employee benefits at CBIZ in San Diego, California.
An ACO resembles a health management organization (HMO) in that a narrow network of health care providers may only be used; however, rather than contracting with insurance companies, employers contract with the providers themselves, at a reduced rate, and providers are incentivized to reduce costs for employers that contract with them. A third-party administrator (TPA) works with the employer and providers to oversee and facilitate the plan.
With an ACO, the employer and providers set a budget for health benefits—e.g., $1 million. If costs exceed that, stop-loss insurance will kick in. But if costs stay below the health benefits budget, the employer and providers get to share the savings.
“We’ve seen savings between 18% and 30% for employers,” Serrano says.
According to Hub International Ltd. (HUB), employers could save 17% on health care costs using these narrow networks. In addition, it found more than half (51%) of employers have implemented voluntary benefits as a cost containment method and that using pharmacy carve-outs and self-funding could save, respectively, 20% and 9%.
Health care expenses are concentrated among a relatively small percentage of high-need individuals—those who cost $50,000 or more in one year, the American Health Policy Institute notes. These high-cost claimants, as they are called, are employers’ greatest source of health care costs, surpassing medical inflation, pharmaceuticals and any specific disease or condition. According to the National Business Group on Health, these claimants are the No. 1 cost driver for 43% of large employers.
In its report “High-Cost Claimants: Private- vs. Public-Sector Approaches,” the institute points to several possible initiatives employers could take to start addressing this challenge, including:
- Mining health data to target certain chronic conditions;
- Engaging beneficiaries to be active plan participants;
- Implementing wellness programs with a clinical orientation;
- Developing predictive biometric screening profiles that are compliant with the Health Insurance Portability and Accountability Act (HIPAA); and
- Using care management to target the costs of particular diseases or procedures.
Another approach employers may consider is tightening spousal rules, according to Conrad Siegel Actuaries’ annual Medical and Prescription Drug Survey. Thirty-three percent of employers have some form of spousal coverage provision for medical and prescription drug insurance. Of those that do, 52% do not allow coverage if a spouse has health insurance access through his or her own employer. This percentage increased from 31% in 2014 and 25% in 2013.
The DirectPath and Council on Employee Benefits (CEB) “2016 Medical Plan Trends and Observations Report” found surcharges are another vehicle employers more frequently use to help offset their rising coverage costs. As plans offering spousal coverage now must add that for same-sex spouses, employers are seeking to control the new expense through surcharges—at nearly three in 10 organizations, according to Buckley. The data show 41% of employers are introducing or planning to introduce spousal surcharges and a few are even excluding spouses from coverage altogether.
Beyond spousal surcharges, the DirectPath and CEB report found 21% of employers have imposed tobacco use surcharges. Although these have been more common than spousal surcharges in recent years, their adoption rate has slowed, with only 26% of employers planning to introduce them in the next three years, compared with 29% planning to add spousal surcharges.
DirectPath advocates for active engagement to help employers address health benefits costs. “We can all agree that choosing a health care plan and knowing how to use it is hard,” Buckey says. “Much is written about the lack of health care literacy; most Americans don’t understand basic elements of health care, but we expect them to be educated consumers. Are we doing enough to support employees?”
A survey by DirectPath finds that 71% of employers opt for passive enrollment in their health plans. According to Buckey, this is a disservice to both them and their employees. Employers may have chosen plans that are needlessly expensive for their workers—from the premium costs to the costs for coverage. Employees may choose the plan with the lowest premiums, but cost-sharing is higher. So, one aspect of active engagement is providing employees with the support to help them elect the best plan.
The other aspect includes education, tools and one-on-one support, via phone or in person, whereby someone can walk employees through the choices available, and employees can ask questions or the support person can raise points they had failed to consider.
To show how active engagement can save on health benefit costs, Buckey gives the example of an employee who picks a plan with a high deductible and relatively low premium cost. But, because of the high deductible, he becomes reluctant to seek care. In that situation, a health condition could be missed that becomes chronic and costs the employer and employee much more.
Another strategy DirectPath sees is an increase in the use of telemedicine. There are now organizations—MDLive for one—that provide a service wherein the employee has 24/7 access to a doctor by phone or other media. This is helpful if a health problem arises after hours or if the employee is at home with a child and unable to get out.
Thirty states and the District of Columbia require that private insurers cover “telehealth” the same way they cover in-person services, Buckey says. Many other insurers pay for at least some telehealth service, and many more have expressed interest in expanding this coverage.
Finally, she notes, for a brief time, private health exchanges were advertised as a promising way to control costs for employers, however, these exchanges have become mostly a source of retiree health benefits.
“Employers are constantly searching for the silver bullet to control health costs, but there isn’t one. It’s going to be a combination of strategies,” Buckey concludes.